Economics at your fingertips  

The two faces of interbank correlation

Klaus Schaeck (), Consuelo Silva Buston and Wolf Wagner ()

No 12363, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Correlations of stock returns across banks are an essential input into systemic risk measures. We demonstrate that such correlations can be decomposed into two parts: a systematic component arising from diversification activities, and a systemic component specific to banks. We find that at U.S. Banking Holding Companies correlations are to a large extent driven by the systematic component. However, applying the decomposition to the Marginal Expected Shortfall (MES), we show that it is the systemic component that predicts bank failure and risk during the Global Financial Crisis. The results suggest that it is important to distinguish between the two sources of correlations when measuring systemic risk at banks.

Date: 2017-10
New Economics Papers: this item is included in nep-ban and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at

Related works:
Working Paper: The Two Faces of Interbank Correlation (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This working paper can be ordered from ... rs/dp.php?dpno=12363

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

Page updated 2020-07-20
Handle: RePEc:cpr:ceprdp:12363